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Tuesday, March 22, 2005

Financial quacks

Whenever I rail against journalistic innumeracy, which is often, I tend to point out that journalists are normally creative arts-graduate types, who frequently have very little grasp of numbers. In turn, this means that they're at risk of being taken advantage of by people claiming to perform wonderful "demystification" services for them.

Today I came across one of the most egregious such quacks, in the form of Galia Gichon of Down To Earth Finance. Ms Gichon is teaching a MediaBistro course next week, where, for a mere $65, she will dispense advice on how to "get a grip on debt" and other such staples of the personal-finance pages. Judging by her Q&A on MediaBistro today, however, you'd be better off spending that $65 on getting blotto in the nearest bar. Certainly, any halfways-decent personal finance book will be much cheaper and much more useful.

Here's the advice that Gichon thinks is particularly germane to New York freelance journalists:

1) Hire a Bookkeeper. As a freelancer, this is one of the most important financial decisions you can make. You will save so much time and be able to focus on getting more business.

WHAT??!! This is completely insane. Bookkeepers, at their best, save you time and cost you money. Freelancers, in general, have lots of time and very little money. Saving time is not top of the list of most freelancers' priorities. Spending money on a bookkeeper, I think it's fair to say, is right at the bottom. What would a freelance journalist do with a bookkeeper, anyway? Give her a pile of receipts and ask her to add them up in the hope that they might count as a business expense? Get her to add up this year's invoices so she can see just how little money she's actually made?
Bookkeepers are necessary for small businesses which have relatively high gross income and relatively high expenses. Freelance journalists have relatively low incomes, and nigh-on zero business expenses. Unless you need a bookkeeper to pay your phone bill, hiring a bookkeeper is a complete waste of money. .

2) Make Your Savings Automatic. Set up an automatic savings account into a money market account or mutual fund. Most freelancers are not saving enough of their income. Get it out of your checking account and into a place where it is harder to touch it - without having to think about it!

Automatic. What a good idea. Every two weeks, when I get paid, I can just take $150 and put it into my money market account. By the end of the year, I'll have saved almost $4,000! Except, oh, hang on a minute, I'm a freelancer. I don't get paid every two weeks. In fact, I can go a couple of months without any income at all.
Automatic savings make no sense in the context of a freelance lifestyle. They're predicated on a steady income – which is the one thing a freelancer, pretty much by definition, doesn't have.

3) Clean Up Your Old 401(k). Chances are many of you have a lingering 401(k) from previous jobs. Consolidate them and roll them over into a rollover IRA at a discount brokerage firm (i.e. Fidelity, Schwab, Vanguard, T. Rowe Price). Streamline your investments!

More ways to spend money! First spend $65 on Gichon's course, then spend more money on hiring a bookkeeper, and now spend more time and money still, tranferring your investments from one place to another. This involves selling all the securities you own (you'll get charged for that), moving them elsewhere, and then buying a whole bunch more securities, which might even be the exact same securities you owned in the first place. You'll get charged for that, too. If you buy mutual funds, there might well be up-front fees as well. And this is all in the aid of... streamlining your investments. But streamlined investments don't return any more money than non-streamlined investments. Plus, are Fidelity and T Rowe Price any more "discount" than any other brokerage firm? I really don't get this at all. It seems like a very laborious way to make yourself feel that you're doing something, when in fact you're not achieving anything.

4) Deal With Your Debt. Many freelancers use credit cards as a way of managing cash flow. While this sounds like a great idea, many of you find yourself with that "revolving" balance that doesn't seem to go away. When you have a month with extra income, put that extra away and then use it for those drier months. Also, STOP using your credit cards and focus on paying your balance down.

I'm no fan of credit cards, that's for sure. So this isn't completely atrocious advice. But it offers precious little in the way of specifics: if I'm a freelancer with a revolving balance on my credit card, and I have extra income one month, should I "put that extra away" or should I "focus on paying my balance down"? (Answer: the second. It's always better to pay down debt than to save. But Gichon doesn't make that nearly clear enough.)

5) Shop Around For Health Insurance. Today, freelancers have many more options for health insurance than they used to. Check out Mediabistro's resources or EHealthinsurance.

Well, there's a nice plug for MediaBistro. But I'm pretty sure that most freelance journalists either don't have health insurance, or they have the cheapest insurance they could find. I doubt that many are overpaying for it.

6) Do a Check-up on Your Expenses. Are you still using that fancy-shmancy gym? What about those magazine subscriptions that are lying around? How about those extra cable channels that you never watch? A 6-month check-up on your expenses can clean up your checkbook and find an extra few hundred dollars every month.

Again, doesn't this seem a little tone-deaf when aimed at freelance journalists? How many hand-to-mouth freelancers do you know who belong to a "fancy-shmancy gym"? I'm sure that if there are any, they are most certainly "still using" it. And magazine subscriptions – for one thing they're rather necessary for journalists; for another, you can't just cancel them and save money. No one subscribes to magazines every month. I'm all in favour of cutting down on expenses: in New York, it's astonishing how much money can be spent on food, drink and cabs. But these examples, are, frankly, lame. Don't tell journalists to consume less media, tell them to buy fewer shoes!

7) Don't Be in Denial. Many freelancers claim that they can't deal with their finances. Well, the successful freelancers have learned how! It's not that hard, but you do have to be proactive. Take a class, read a book and hire a fee-only financial advisor. A little financial knowledge goes a long long way.

It's not hard to deal with your finances: take a class (which costs money), read a book (which costs money), and hire a fee-only financial advisor (which costs money). Why do I get the feeling that this Gichon woman doubles as a fee-only financial advisor? Most freelance journalists have negligible savings, and if you have negligible savings, your need for any kind of financial advisor is slim to zero.

Frankly, I'm not surprised that Gichon sees lots of people who can't think straight about money: you'd have to be pretty financially stupid to fall for this claptrap and pay for her services in the first place. But if Gichon's a quack and a huckster, that's all in a grand old American tradition. What I really can't understand is why MediaBistro is lapping it all up. Don't they have a former financial analyst as editor-in-chief? Shame on them.

Posted by Felix at 21:05 EST | Comments (6)

Saturday, March 19, 2005

Wolfowitz

I've recently written an article about Wolfowitz at the World Bank for publication, so I was going to avoid the topic here. But then I found myself today reading Thursday's WSJ editorial on the subject, and it incensed me so much that I just had to fisk it. I rarely take the WSJ editorial page seriously, and I don't this time either, but this leader shares a lot of sloppy thinking with a lot of the people who both oppose the World Bank generally and who support Wolfowitz's nomination. Hence this blog.

Banking on Wolfowitz
Our World Bank sources tell us that when news was received yesterday of Deputy Defense Secretary Paul Wolfowitz's nomination to succeed outgoing Bank President James Wolfensohn, a collective shudder could be felt throughout its Washington headquarters. It's an affront to multilateralism. It will make the Bank look like an arm of American imperialism. It will spark a revival of the antiglobalization movement the Bank has tried so hard to "dialogue" with and co-opt.

This is actually true. The Bank staff reacted with dismay to Wolfowitz's nomination. This, in and of itself, should be reason enough to think twice about nominating him: the job of running the World Bank is hard enough without having to overcome the obstacle of everybody mistrusting you before you even begin.

Whatever. The World Bank is a dysfunctional bureaucracy that requires deep reform if it is to recover the trust of American taxpayers and survive as a relevant institution in the 21st century.

This might have been true at the beginning of Wolfensohn's tenure, but by this point the needed reforms are no longer deep. Most of Wolfensohn's first term in office was pretty disastrous, mainly because he was so busy stomping all over the Bank staff with his reformist agenda that he didn't actually achieve anything in the outside world. What Wolfensohn eventually learned is that development is a subtle and complex creature, and that it's better to slowly tease the Bank into what you want it to be than to try to enforce major change from on high. If Wolfowitz arrives believing that the Bank needs "deep reform", the result will be chaos for at least a couple of years, at the end of which he will have to start from scratch in building his vision. Much better that he decide where he wants to get, and then work out how to get there organically from here.

That President Bush named as talented and senior a public servant as Mr. Wolfowitz is a sign he still takes the World Bank seriously--something we sometimes find hard to do--and that he means to reshape its cash-input-driven culture, which so far has produced negligible outputs for its ostensible clients, who are the world's poor.

That President Bush unilaterally named Wolfowitz to the Bank's presidency without any kind of transparency or consultation – indeed, without even saying in advance what qualities a World Bank president needed – is a sign that the Bank's cash-input-driven culture is stronger than ever. The USA, as the Bank's single largest shareholder, calls all the shots in naming its president, and has completely ignored the rest of the world, including the Bank's ostensible clients, in trying to work out who should run it. There is, indeed, often a clash at the Bank, between what donor countries want and what aid recipients want. We can surely assume that whenever Wolfowitz has to come down on one side or the other – whenever the Third World wants one thing and the USA wants another – he will do America's bidding. The shareholders, rather than the clients, will continue to call the shots.

To gain a sense of what ails the Bank, it's useful to read the bipartisan 2000 Meltzer report on international financial institutions, which counts liberal development guru Jeffrey Sachs among its authors. The report is a bit dusty, but since the Bank fiercely resisted its conclusions, the analysis remains valid. Inter alia, the report found that 70% of the World Bank's "non-aid" funds go to 11 countries that already have easy access to capital markets, such as China, Mexico, Brazil and Thailand.

This is not the time to rehearse all the arguments of five years ago about the Meltzer Commision report; suffice to say that its main authors, Allan Meltzer and Adam Lerrick, essentially want to abolish the Bretton Woods institutions. But it's true that a lot of Bank funds go to middle-income countries like China and Brazil. Guess what? A lot of the world's poor are in middle-income countries like China and Brazil. Have a look at page 4 of this PDF file: as of 2001, the latest year for which numbers are available, there were 596 million people living on less than $2 a day in China, compared to 514 million in all of sub-Saharan Africa. If you ignore China and other middle-income countries, you ignore a huge part – probably the majority – of the problem of poverty.

Yes, it is true that China, with its investment-grade credit rating, has easy access to capital markets. Then again, it was only a couple of years ago that Brazil had no access to capital markets at all. These things come and go, and Murphy's Law states that if the World Bank leaves a country because it has access to private capital, that country will end up losing that access to private capital at precisely the instant that it needs it most.

More to the point, however, whether or not a country has access to private capital is rather irrelevant in the Bank's war on poverty. Right now you'd be hard pressed to find a single analyst who thinks that credit spreads aren't insanely tight, but even so Brazil is still trading at 424 basis points over Treasuries. What that means is that if Brazil wants to raise money in the capital markets, it has to pay whatever the US government is paying, plus 4.25 percentage points. The Journal seems to think that if any development is going to be funded in Brazil, it should be funded at market rates. But why should development in Brazil be more expensive than development in China, which is trading at just 47 basis points over Treasuries? The fact is that a lot of the calculations that go into those numbers – things like total amount of foreign debt outstanding, or the country's perceived willingness to repay foreign bondholders – are not and should not be relevant for the purposes of development.

The World Bank, it's worth remembering, is a bank, of sorts. It borrows money in the market at very low rates, and then lends it out at higher rates – albeit at levels high enough that it can make a bit of a profit on the transaction. It can lend at lower levels than the market as a whole because it has something called preferred creditor status: that is, even when countries like Argentina default on their bonds, they still pay the IMF and the World Bank in full. Chances are, if private investors could get preferred creditor status, then they too would lend at World Bank levels. In fact, if you look at the long-term returns received by the World Bank and by private investors, they turn out to be pretty much identical. The Bank charges lower interest rates, but has a lower default rate; net-net, it's a wash.

In other words, the market charges an extra premium to make up for the fact that countries default. With the World Bank, there's no premium and no default – a much better state of affairs for all concerned. There's no doubt that development projects in countries like Brazil would be scaled back or even cancelled altogether if they had to be funded at market rates. Since there are millions of Brazilians in poverty who can be helped by World Bank projects, a decision to cut off Brazil from all World Bank funding just because it has access to markets would measurably harm those millions of people.

What's more, the decision would harm poverty-stricken people in sub-Saharan Africa and other places without market access, as well. The reason is that, as we have seen, the Bank actually makes a profit on its loans to the likes of China and Brazil. The profits the Bank makes in those places help to subsidise its activities in Africa and other desperately poor areas of the world. No profits from China, less aid for Africa. It's as simple as that.

It found that beneficiary countries that do not have access to markets mostly "remain poor because their political system is unstable, private property rights are very limited, the judicial system is weak or subservient, or the government is corrupt," and that assistance to such countries "at best provides relief [and] at worst . . . supports corruption or programs that waste scarce local and external resources."

There is a germ of truth in these allegations. But the Bank is getting much better at delivering aid directly to where it's needed, and dealing with countries on a case-by-case basis. Looking at the bigger picture, however, it has always been true that some unknown percentage of all aid is wasted. It is right and proper for the Bank to try to identify and minimise that waste. It is entirely wrong, however, to use that wastage as an excuse to spend less money on aid overall.

The report also devastated the Bank's internal culture. It found "weak counterbalance to the incentive to lend" and "no penalties for project failure." It found that by the Bank's own evaluations, 59% of its investment programs in the 1990s failed.

So the bank has tough internal auditors: that's a good thing. The more that the Bank knows where it's going wrong, the more it can learn from its mistakes. Yes, there are some reforms needed within the bank, but there will only be serious counterbalance to the incentive to lend if and when Bank officials themselves actually sign off on those decisions. Much of the problem at the moment lies in the fact that loans are ultimately given the green light not by Bank officials but by the Bank's shareholders on the board of directors. Sometimes they want one thing, sometimes they want another. And although they're quick to take the credit when things turn out well, they're also quick to blame the Bank when their pet projects implode. If the Bank can get out of its current excessive shareholder oversight, it might be able to take more responsibility for its lending decisions. After all, how many private corporations have a board which meets every couple of weeks, with dozens of full-time board members constantly second-guessing the actions of the executive officers?

Finally, the report noted that while Bank lending had doubled in 30 years, to $32.5 billion in 1999, its share of overall private sector capital flows to developing countries was only about 2%, basically an irrelevance.

Private sector capital flows to developing countries do not, generally, have anything to do with the development goals of the World Bank. Let's say that Ford builds a factory in Mexico: that could be a billion dollars of capital flows right there, but it's unlikely to help the poor of Chiapas get access to cleaner water or better education. China is the classic example: essentially all of the enormous capital flows into the country are aimed entirely at the free-trade areas up and down the coast, while the vast majority of the country remains untouched by investment. Most capital flows to developing countries go precisely to the richest areas of the richest countries. There certainly aren't many private-sector capital flows to sub-Saharan Africa. In terms of development, the World Bank is anything but an irrelevance.

Upon such terrain Mr. Wolfowitz's parachute now lands. He should be prepared for some stiff resistance to his reforms, including high-level departures to whatever is the World Bank equivalent of Canada. But so be it: The Bank can hardly demand good governance of its client states if it is incapable of imposing some internal standards and controls.
Outsourcing its auditing functions--a move resisted by Mr. Wolfensohn--is just the place to start.

As we've just seen, the Bank's internal auditors are extremely tough already. There's no reason to believe that external auditors would be better, although they would almost certainly be more expensive.

Another is to steer the Bank further away from making loans toward grants, tie grants to performance, and measure performance using well-defined metrics: miles of road built, number of students graduated and so on.

If the bank moved from loans to grants, then it would make no profits, and have to go begging to its shareholders for all of its disbursements. Far from doing more what its clients want, it would be completely at the mercy of its shareholders. As for measuring performance, it sounds good in theory, but in practice it's pretty much impossible, since no one knows what the base case is. If the World Bank gets involved in Liberia and the number of people dying goes up, it still might be a lot less bad than if the Bank had not gotten involved at all. Asking for easily-measured performance goals would simply mean that the Bank would never be able to get involved in some of the most intractable problems, like those of Haiti.

Some of Mr. Wolfowitz's critics were already asking yesterday what expertise a "neo-con" security intellectual could possibly bring to international finance. But the former diplomat has plenty of knowledge of the Third World, and has seen the Bank on the ground, in stints as Ambassador to Jakarta and Assistant Secretary of State for East Asia. He served in both posts in the 1980s, when the benefits of free-market reforms were blossoming in that part of the world.
More important, Mr. Wolfowitz is willing to speak truth to power. In Indonesia, and before that in the Philippines, he saw earlier than most, and spoke publicly about, the need for dictators to plan democratic transitions.

Or, alternatively, he cravenly supported the Suharto regime. Believe whom you like.

Too bad they didn't take his advice. His predecessor at the Bank has devoted a lot of time to berating democratic donor states for being too "stingy" with their largesse, as if another $100 billion is all that stands in the way between the poor and their redemption.

Well, there's no doubt that it would help a great deal. If the US had given that $100 billion to Jeffrey Sachs rather than Paul Wolfowitz, and used it in Africa rather than Iraq, the world would today be a much better place than it is.

In fact, it is the world's dictators who are the chief causes of world poverty. And it seems to us that if anyone can stand up to the Robert Mugabes of the world, it must be the man who stood up to Saddam Hussein.

Robert Mugabe does not get any aid from the World Bank. On the other hand, most of the world's poor do not live in stable democracies. If the Bank were to give money only to democratic regimes, it would be leaving most of its clients with no hope at all. As one Donald Rumsfeld famously said, you go to war with the army you have, not the army you might want or wish to have. It's the same with the war on poverty. It's all well and good wishing that we could fight the war on a liberal-democratic playing field, but that's not the way the world is. Let's not turn global development into a mandate for regime change in developing nations.

Note: I am indebted, for many of the points I make here, to Sebastian Mallaby and his excellent book on James Wolfensohn and the World Bank. If you're at all interested in either subject, I highly recommend you read it.

Posted by Felix at 23:58 EST | Comments (7)

Thursday, March 17, 2005

Freakonomics

Last year, I said some nice things about Steven Levitt and Stephen Dubner, or at least about an article they wrote in the New York Times Magazine:

The best piece of all in the magazine, however, doesn't look big, it looks small. Stephen Dubner and Steven Levitt have found an absolute gold mine in Paul F., a trained economist who now runs a bagels-and-doughnuts service for local offices. His business runs on the honour system: throw a buck in the box for a bagel, or 50 cents for a doughnut. And, of course, he's kept detailed data on delinquency rates, which go up when the weather is bad, or Christmas is nigh, or even when the office exceeds a certain size. There are some wonderful results...

The two Steves are very different individuals. Stephen Dubner is a journalist and regular contributor to the New York Times Magazine who wrote an article about Steven Levitt in 2003. From that article first sprang the bagel story, and now a fully-fledged book, Freakonomics. (In the book we get the bagel article all over again, except for now Paul F. is graced with his full name: Paul Feldman.) The publishers liked my blog about the article so much that they sent me an advance copy of the book; I liked the article so much that I very much looked forward to reading it. A match made in heaven, really – or at least in the blogosphere.

Steven Levitt is much better known: mention his name to anybody even peripherally associated with economics, and they have a tendency to get extremely excited. Levitt is not a macroeconomist at all; rather, he's an expert at microeconomics, where he tries to find statistically interesting or important patterns in everyday things. Just scrolling down his list of recent publications is mouthwatering: whose interest wouldn't be piqued by a peer-reviewed article entitled "A Test of Mixed Strategy Equilibria: Penalty Kicks in Soccer"?

In fact, Levitt has a strong interest in both sports and sports betting: he's shown that simply by betting on home underdogs in NFL games, people can break even, and he has a secret plan (really!) to make money betting on horses. Unfortunately, none of that material makes it into the book.

Rather, the aim of the book is to popularize Levitt's work more generally, and to introduce his brand of thinking to the general public in a format which was slightly longer lasting than an article for the New York Times magazine. Levitt would provide the ideas, and Dubner would provide the prose.

The book also, quite explicitly, aims to capitalize on the success of Malcom Gladwell's The Tipping Point, or Oliver Sacks's The Man Who Mistook His Wife For A Hat: books where anecdotal evidence is corralled in support of broader, more empirical, and yet extremely original, ways of looking at the world.

There's a problem, however: it turns out that while Levitt does have a very interesting way of looking at the world, he has very little in the way of broader theses which he might wish to support. The authors make no bones about this:

Most books put forth a single theme, crisply expressed in a sentence or two, and then tell the entire story of that theme... This book boasts no such unifying theme. We did consider, for about six minutes, writing a book that would revolve around a single theme – the theory and practice of applied microeconomics, anyone? – but opted instead for a sort of treasure-hunt approach.

What that means, in practice, is a series of disjointed chapters, some of which are much better than others. In fact, it's the earlier ones which are better than the later ones, which means that readers are likely to come away disappointed, as though they were promised something which was never delivered. And due to its disjointedness, if someone is asked what the book is about, they're not really going to be able to come up with an answer. The subtitle of the book is "A Rogue Economist Explores the Hidden Side of Everything", but that doesn't really help us all that much – especially since Levitt, winner in 2003 of the John Bates Clark Medal (previous winners: everyone from Milton Friedman to Paul Krugman and Larry Summers), is no one's idea of a "rogue economist".

In fact, Levitt is entirely unthreatening to the economic establishment, which is one reason why he and his co-author have to create a straw man, in the form of something called "the conventional wisdom", against which Levitt can valiantly fight. Yet after telling us in their introduction that "the conventional wisdom is often wrong", the authors have no problem relying on it whenever they feel like it.

The most egregious form of conventional wisdom is probably the urban myth: something which millions of people believe, but which is entirely fictional. Kidney harvesting, that sort of thing. Once you know about urban myths, you generally know them when you see them, and when my friend Paul told me a couple of years ago about a friend of his who worked at a hospital and who witnessed an African-American woman naming her daughter Shithead (pronounced "Shateed"), I didn't think it was the literal truth.

But here's Levitt and Dubner:

Roland G Fryer Jr, while discussing his names research on a radio show, took a call from a black woman who was upset with the name just given to her baby niece. It was pronounced shuh-TEED but was in fact spelled "Shithead"... OrangeJello, LemonJello and Shithead have yet to catch on among the masses, but other names do... It would be an overstatement to suggest that all parents are looking – whether consciously or not – for a "smart" name or a "high-end" name. But they are all trying to signal something with a name, whether the name is Winner or Loser, Madison or Amber, Shithead or Sander.

In other words, when it suits them, Levitt and Dubner lap up the conventional wisdom to the point at which they perpetuate something which has all the markings of an urban myth. (Phone-in talk shows on the radio are one of the prime propagating vectors of these things.) Most likely, the woman who phoned in genuinely believed that at least one black woman (a "friend of a friend", no doubt) had named her daugher Shithead, and she simply personalized the anecdote for the sake of making it more immediate to the radio audience. That's the way that urban myths work: it's always a friend of a friend, never a friend of a friend of a friend. But Roland Fryer was simply laughing, so he didn't check her claim out, and Levitt and Dubner have now given a semblance of academic legitimacy to what is essentially a racist stereotype.

In fact, there's more than a little editorialising going on throughout the book, often for no particular reason. In what I expect is going to be the jacket copy on the hardback, we're given a list of "provocative questions" that Levitt asks, like, um, "Why do we spend more on chewing gum than on campaign contributions?" In the event, that question is never really asked, let alone answered. Rather, we get a section of the introduction which begins like this:

Of all the truisms about politics, one is held to be truer than the rest: money buys elections.

It ends like this:

What about the other half of the election truism – that the amount of money spent on campaign finance is obscenely huge? In a typical election period that includes campaigns for the presidency, the Senate, and the House of Representatives, about $1 billion is spent per year – which sounds like a lot of money, unless you care to measure it against something seemingly less important than democratic elections.
It is the same amount, for instance, that Americans spend every year on chewing gum.

Now it might well be true that "money buys elections" is conventional wisdom. But I don't believe that most people think that it is "truer" than all other bits of political conventional wisdom, such as, say, the "divided nation" hypothesis. And as for the chewing-gum factoid, a close reading reveals that what the authors are doing is taking a whole election cycle – four years, I would assume – and working out the annual spending per cycle. In a presidential election year like 2004, it's probably safe to say that Americans spent much more on political donations than they did on chewing gum.

Normally, I would be much more forgiving of such rhetorical excesses than I am here. But this is a book which claims to be solidly rooted in empirical and indubitable data. The running theme of the book is "you might think X, but in fact, Y". So lazy assumptions are more egregious here than they are normally.

Levitt and Dubner like to get holier-than-thou when others make mistakes. At one point, they eviscerate a homeless advocate named Mitch Snyder, for saying that there were 3 million homeless Americans:

When Snyder was pressed on his figure of 3 million homeless, he admitted that it was a fabrication... It may be sad but not surprising to learn that experts like Snyder can be self-interested to the point of deceit. But they cannot deceive on their own. Journalists need experts as much badly as experts need journalists... Working together, journalists and experts are the architects of much conventional wisdom.

So what happens when Dubner and Levitt – a classic pairing of a journalist and an expert – get together? It may be sad but not surprising to learn that even they can come up with decidedly dodgy numbers. Here's one:

Economists have a curious habit of affixing numbers to complicated transactions. Consider the effort to save the northern spotted owl from extinction. One economic study found that in order to protect roughly five thousand owls, the opportunity costs – that is, the income surrendered by the logging industry and others – would be $46 billion, or just over $9 million per owl.

When alarmist figures in the billions start getting quoted, I immediately start getting suspicious. So I went to the footnotes, which cited a paper by Jason Shogren from which, I believe, this is extracted. Here's what Shogren actually writes:

Opportunity costs have been estimated for a few high-profile, regional ESA conflicts such as the northern spotted owl. One study estimated that an owl recovery plan that increased the survival odds to 91 percent for a population of about 1,600 to 2,400 owl pairs would decrease economic welfare by $33 billion (1990 dollars), with a disproportionate share of the losses borne by the regional producers of intermediate wood products, a relatively small segment of the population (Montgomery et al. 1994). If the recovery plan tried to push a goal of 95 percent survival odds, costs increased to $46 billion. Another study estimated the short-run and long-run opportunity costs to Washington and Oregon of owl protection at $1.2 billion and $450 million (Rubin et al. 1991).

In other words, Levitt and Dubner have taken the very highest estimate from Shogren's paper, one which Shogren didn't even come up with himself, and used it uncritically. They could have used the $1.2 billion and $450 million estimates instead, of course, but chose not to for reasons we can only guess at.

I also sent Shogren an email, asking him what he thought of this use of his number. He said that the $46 billion was "an outside estimate," and added:

We used the number to illustrate what little we do know about costs of the Endangered Species Act. Other numbers we cite in the paper say that the ESA is more about transfers of wealth (from agricultural to recreation) than about the loss of wealth.

The really weird thing is that the factoid aboout the spotted owl seems to have been dropped into the book utterly randomly: it's there only to illustrate the broader point that economists try to measure all manner of different things. But why would Levitt and Dubner concentrate only on the costs of saving the spotted owl, while ignoring the benefits? And why would they pick a number which seems designed to shock, rather than a much more reliable number which is less shocking, like the cost per life saved of installing various safety features on roads or subways? The broader context, after all, is that of abortion, and whether it's possible to quantify the costs and benefits of abortion, after taking into account its role in lowering the crime rate. Saved lives, in this context, seem far more germane than saved owls.

But throughout the book, the authors veer wildly between presenting Levitt's research and presenting striking information (Shithead! $46 billion! Chewing gum!) seemingly just for the sake of showing readers how crazy this world is.

When Levitt and Dubner venture into the anecdotal, then, this is a weak book. I'm sure that the decision to do so was based on conventional wisdom within the publishing world: that if you want to write for a mass audience about empirical ideas, then you have to boil everything down to anecdote. So much for ignoring conventional wisdom.

The empirical parts of the book are much stronger. Chapter 1, for instance, entitled "What Do Schoolteachers and Sumo Wrestlers Have in Common?", gives a number of good examples of when people cheat, and how statisticians like Levitt can catch them doing so. First are Chicago schoolteachers: by looking at raw test results, Levitt could see where they had altered their pupils' scores before handing the tests in. Then there are the sumo wrestlers: it turns out that pairs of them often engage in deals where one wrestler will win one match and the other will win the next, when such a deal will keep the first wrestler in the top leagues. Again, this is quite clear from the statistical data, if you know where and how to look.

Even in this chapter, however, with three different examples of Levitt's work (here's where we find the bagel guy), the authors aren't happy unless they add in some extra colour. So we get padding, too: apparently another teacher cheated, at the University of Georgia, in 2001. There was no statistical analysis involved in his capture, and his story doesn't help the structure of the chapter at all, but we're told about it anyway: if we're interested in cheating schoolteachers in Chicago, might we not be interested in cheating university teachers in Georgia? I think the inclusion of the story betrays a certain lack of faith in how compelling Levitt's story really is. While Levitt is interested in ways of catching cheats, the chapter's attention keeps wandering from that subject, which means we end up learning about other forms of cheating, as opposed to other forms of detecting cheating.

Elsewhere, we're treated to a mildly diverting treatise on the economics of fear, first introduced in Chapter 2, when the authors discuss how a very small number of lynchings managed to cow an entire race into submission during the 1940s.

There are few incentives more powerful than the fear of random violence – which, in essence, is why terrorism is so effective.

This is expanded upon in Chapter 5:

Fear best thrives in the present tense. That is why experts rely on it; in a world that is increasingly impatient with long-term processes, fear is a potent short-term play. Imagine that you are a government official charged with procuring the funds to fight one of two proven killers: terrorist attacks and heart disease. Which do you think the members of Congress will open up the coffers for? The likelihood of any given person being killed in a terrorist attack are infinitessimally smaller than the likelihood that the same person will clog up his arteries with fatty food and die of heart disease. But...

Let's put to one side the fact that "infinitessimally smaller" actually means "of roughly the same size". This is all prefatory to Levitt's determination to teach parents that swimming pools are more dangerous than guns, and that we ought to be more afraid of everyday killers than we are of rare occurrences like terrorist attacks. The problem here isn't that Levitt is wrong; in fact, he's absolutely right. But he's hardly a lone warrior in this war. Here's Senator Joseph Biden of Delaware, in this week's New Yorker:

I would say to John [Kerry], ‘Let me put it to you this way. The Lord Almighty, or Allah, whoever, if he came to every kitchen table in America and said, “Look, I have a Faustian bargain for you, you choose. I will guarantee to you that I will end all terror threats against the United States within the year, but in return for that there will be no help for education, no help for Social Security, no help for health care.” What do you do?’
“My answer,” Biden said, “is that seventy-five per cent of the American people would buy that bargain.”

So Levitt gets it, and Biden gets it. But Biden puts it in a more arresting way, and he doesn't rely on vaguely inchoate notions like "a world that is increasingly impatient with long-term processes". And he certainly doesn't provide, at the end of a list of "Suggested Interview Questions", this:

14. You say your ultimate aim is to figure out a way to use economic data to fight terrorism. How would you do it?

Levitt, it seems, wants to have his cake and eat it: on the one hand he tells us that we shouldn't be nearly as afraid of terrorism as we are, and then on the other he (or his publicist) says that his "ultimate aim" is to fight terrorism.

And just like the University of Georgia's cheating professors, the stuff on fear serves as extra padding. In the first chapter there are two full pages of alphanumerical data, which we're actually given, rather than simply told about. The final chapter is much worse: it has no fewer than 26 different tables listing various boys' and girls' names, sorted according to popularity, sex, what they indicate about the race of the child, what they indicate about the level of education of the child's parents, and so forth. There's even a table telling us that the mother of the average Jasmine has 12.88 years of education, compared to 11.94 years of education for the average Jazmine's mother and 13.23 years of education for the average Jasmyn's mother.

All of these tables do a great job at taking up space in this very short book, but their dialectical purpose, I have to admit, defeats me. The beginning of the chapter (subtitile: Would A Roshanda By Any Other Name Smell As Sweet?) includes one marginally interesting empirical result: that a black child with a distinctly black name does not suffer quantifiable economic disadvantage in comparison with an identical black child with a distinctly white name. Once we've discovered that, however, we then go on a veritable fun-ride of naming conventions and correlations, to no obvious end. Here's the final conclusion of the final chapter (if you don't include the Epilogue):

What the California names data suggest is that an overwhelming number of parents use a name to signal their own expectations of how successful their children will be. (Bold emphasis mine; italic emphasis the authors.)

Nowhere in the chapter have we been told about the numbers of parents who choose various different types of name, or the numbers who don't. There have been lots of lists of names, but no numbers at all: the whole chapter reads as though if you pile up enough anecdote, you can generate empirical conclusions by sheer mass alone.

It conceivable, although I doubt it, that there's something in the data which supports the authors' conclusion. There's certainly nothing in the book, however. If they know how many parents use a name to signal their own expectations of how successful their children will be, why don't they tell us? And if they don't know what the number is, how do they know that the number is overwhelming?

One of the problems is that by this point in the book, the authors have seemingly run out of Levitt studies to talk about. There were three in the first chapter, you'll recall; there are two in Chapter Two – a study of how estate agents get higher prices for their houses, and another on discrimination in the TV program The Weakest Link. In Chapter Three there's one, on the economics of a gang of crack dealers. Apparently it's much the same as the economics of McDonald's.

Chapter Four brings together Levitt's other studies on crime: how adding policemen brings it down, and how it's related to both the crack epidemic and to abortion rates. Chapter Five barely touches on Levitt research; one study about the black-white test score gap is mentioned. And Chapter Six, as we have seen, starts with Levitt research on the consequences of having a distinctively black name, and then sets off into uncharted territory.

As the amount of empirical research underpinning each chapter slowly ebbs away over the course of the book, the authors are forced to cast their net ever wider for interesting, if dubiously relevant, anecdotes. We're given a potted history of the Ku Klux Klan. We find which words correlate with high prices in real-estate ads. We learn how to get a date from online dating sites. We're asked what crack cocaine has in common with nylon stockings.

And, at the beginning of each chapter, we get a little excerpt from Dubner's original profile of Levitt, including some extremely personal information which felt to me at least rather gratuitous. By the end, we've learned not only that Levitt lost his firstborn son to pneumococcal meningitis, but also that his coauthor on one paper, Roland Fryer, was abandoned by his mother, beaten by his alcoholic sex-criminal father, and became a gun-toting drug dealer before turning his life around and ending up at Harvard.

This isn't economics, and it isn't freakonomics. It's prurient biography masquerading as illuminating anecdote.

Which brings me to the question of what, exactly, these anecdotes are purportedly illuminating. The authors go to great pains to say that "there is no unifying theme" to the book, but I'm not sure that's true. Underneath it all, I definitely detect a right-libertarian stance, which is all the more noticeable for the authors' protestations that it isn't there. Here's an excerpt from the introduction to the abortion chapter:

Conservatives were enraged that abortion could be construed as a crime-fighting tool. Liberals were aghast that poor and black women were singled out. Economists grumbled that Levitt's methodology was not sound. As the media gorged on the abortion-crime story, Levitt came under direct assault. He was called an ideologue (by conservatives and liberals alike), a eugenicist, a racist, and downright evil.
In reality, he seems to be very much none of those.

That, I think, is what is known as setting the bar very low. I'm sure that Levitt is not downright evil, nor is he racist, and nor is he an ideologue. But over the course of the book, the authors do seem to have been spending quite a bit of time in the shadow of Ayn Rand. (Levitt is at Chicago, don't forget.) From reading the book, we learn that:

Big Government is bad, especially in its more lefty manifestations: look at those cheating Chicago public schoolteachers, or the insane cost of the Endangered Species Act. Left-wingers are really bad: look at the made-up numbers of that homeless advocate. Right-wingers are also bad, but maybe not as bad: the Trent Lott affair is referred to in the table of contents with the question "Is Trent Lott more racist than the average Weakest Link contestant?" (The answer, one assumes from the question, is no.) And if you're worried about the influence of money in politics, don't be: there's barely any.
If you're relying on anybody else to make your life better, your faith is probably misplaced. Doctors, real-estate agents and other experts are basically self-interested. Even your parents might want to make your life better, but in fact they aren't "likely to make a shard of difference," whether they're choosing schools, buying car seats, or choosing names. Our destiny is largely set at birth: who our biological parents are is much more of a determining factor than anything else. If your parents are poor and black, they're very likely to give you a ridiculous name, and you are relatively likely to become a criminal.
Some individuals, however, transcend their destiny. Steven Levitt "is the guy who, in the slapstick scenario, sees all the engineers futzing with a broken machine – and then realizes that no one has thought to plug it in." Stetson Kennedy had "a stroke of brilliance" when he leaked secret Klan information to The Adventures of Superman radio show and became "the single most important factor in preventing a postwar revival of the Ku Klux Klan in the North". Roland Fryer went from gangbanger to Harvard economist.

At heart, Freakonomics is not a book about economics at all: it's a book about a hero who can ask the right questions and uncover the truth. Once you've read it, you'll know lots of interesting facts you didn't know before. But it won't make you stop and think (stopping and thinking is the job of the hero), and it certainly won't "literally redefine the way we view the modern world," as the jacket copy has it. You know how that crack gang was just like McDonald's? Well, this book is too. You finish it off quickly, but end up vaguely dissatisfied: all the added sweeteners and calories serve to mask the fact that there's very little protein or nutritional value.

If you're interested in Steven Levitt the person, then by all means read Freakonomics: you'll learn a decent amount about him and his interests. If you're interested in his work, however, I'd advise waiting for his next book, or maybe trying to track down his original papers. This short and hurried book is not the book you're looking for.

Posted by Felix at 19:36 EST | Comments (16)

Monday, March 07, 2005

Calipari and rendition

The Bush administration, I think it's fair to say, never tells the truth when it would be better served by a lie. We saw this when it came to WMDs, of course, but we've also seen it time and time again in the context of fiscal policy – especially with regard to how much various spending bills are estimated to cost.

So when the New York Times led its flagship Sunday edition with the Bush administration giving the official take on the fraught subject of rendition, I would have liked to have seen a certain amount of pushback from the newspaper of record. Instead, the Times simply caved.

A bit of recent history: in February, the New Yorker ran a magnificent article by Jane Mayer on the subject of rendition – essentially, the way in which the USA sends suspected terrorist sympathisers off to nasty regimes like that of Syria, to get tortured. The title of the piece was "Outsourcing Torture", and the meticulously-reported story told us not only that what we had always suspected was true, but that it was actually having a seriously detrimental effect on the war on terror.

Fast forward to this Sunday, and the Times leading with their impeccable source, the well-known "senior United States official". Here's the background, from the Times story:

The official declined to be named but agreed to discuss the program to rebut the assertions that the United States used the program to secretly send people to other countries for the purpose of torture.

The New Yorker article is never mentioned, although its are clearly the "assertions" which the official was trying to rebut. Immediately, we see two major problems. Firstly, we have a situation where we're being asked who we believe: the excellent (and, no doubt, fact-checked to within an inch of its life) New Yorker story, or a Bush Administration official who simply asserts abstract "facts" without providing any specific detail. Already, I'm tending to believe the New Yorker. But then it turns out that the administration official is insisting on anonymity: in other words, he (or she) faces zero repercussions whatsoever if it turns out that everything he was saying was an outright lie.

How and why did the Times decide to make this person the lead story, rather than insisting that if the Administration wants to put the record straight, it should do so on the record? Here's the central assertion, literally incredible on its face:

The official refused to say how many prisoners had been transferred as part of the program. But former government officials say that since the Sept. 11 attacks, the C.I.A. has flown 100 to 150 suspected terrorists from one foreign country to another, including to Egypt, Syria, Saudi Arabia, Jordan and Pakistan.
Each of those countries has been identified by the State Department as habitually using torture in its prisons. But the official said that guidelines enforced within the C.I.A. require that no transfer take place before the receiving country provides assurances that the prisoner will be treated humanely, and that United States personnel are assigned to monitor compliance.
"We get assurances, we check on those assurances, and we double-check on these assurances to make sure that people are being handled properly in respect to human rights," the official said.

Uh-huh. The US is sending detainees to Syria, and then is so chummy with the Syrians that it can check and double-check that the detainees are not being tortured. "The Syrians might torture their prisoners," seems to be the Administration line here, "and they might be a sworn enemy of the United States, but we're sure they'd tell us if they were torturing the prisoners they got from us."

And, if it's not to torture the prisoners, why is the US sending them into these unspeakably gruesome penal systems? Don't you know, it's just a question of cashflow:

The transfers were portrayed as an alternative to what American officials have said is the costly, manpower-intensive process of housing them in the United States or in American-run facilities in other countries.

Right. Let's say it costs $100,000 to house a prisoner in Guantanamo. If the US has subjected 150 individuals to rendition instead, that's $15 million "saved". Surely there's no conceivable way that the CIA-run rendition program, complete with a Gulfstream private jet, could cost less than $15 million. Yet the Times lets the anonymous Bush administration official get away with this insanely implausible assertion, as though anybody believes that the administration is so concerned by matters fiscal that it will risk sending individuals into the arms of torturers just to save a couple of million dollars.

One of the central points of the New Yorker article is that the whole rendition program is counterproductive: information gleaned from tortured individuals is neither reliable nor admissible in a court of law. So even if a terrorist confesses under torture that Person X is a mastermind who is planning to blow up the world, that information can't be used in the X's trial, and he might well end up getting set free – as has already happened in Germany. Hell, the US won't even provide its detainees to its own legislature: the Congressional 9/11 Commission tried to talk to them, or at the very least put questions to them, but wasn't allowed to by the CIA.

So, on a larger scale, goes it with Administration lies. If the Bushies are seen to be lying all over the front page of the New York Times, then it becomes much harder to believe them when it comes to questions such as that of the killing of Nicola Calipari, the international operations chief of Italy's military intelligence service.

Calipari was killed, of course, but two Italians in the car survived, and both of them strenuously dispute the version of events given by the Americans who killed him. For once I'm inclined to believe the conspiracy theorists: the Americans hate it when hostages in Iraq are ransomed, and opened fire on the Italian journalist quite deliberately. (Eason Jordan, do you feel vindicated now?) No one in Italy seems to believe the American version of events, and it's very hard to believe that sophisticated Italian intelligence officers would behave in the way that the Americans say the driver of the car behaved. On the other hand, given that the Americans had only one chance to intercept Giuliana Sgrena between her rescue and her arrival in Italy, it's easily conceivable that they took that chance to try to scupper the deal by force.

If I could think of a single instance where the Bush administration told the truth despite the fact that they would have been better served with a lie, then I might be more inclined to believe them this time. But given the cavalier attitude which they have repeatedly demonstrated both to the truth and to the press, and given the laughable assertions they made as recently as Sunday on the front page of the New York Times, I simply have no basis to believe what they say any more. And I doubt many people in Europe feel any differently.

The USA has simply lost its international credibility, and so long as George W Bush remains in the White House, I can't think of any easy way it can get it back.

Posted by Felix at 3:22 EST | Comments (2)

Sunday, March 06, 2005

Jolly

I have just been on a most spectacular jolly down a fjord on (in? at?) South Georgia. Drygalski Fjord. Spectacular. Even those who had seen rock in the last year were staring with gaping jaws. And grinning like pigs, if pigs could grin.

We’re talking ice, ICE, 30m high at the end of the glacier and that’s just where it pours off the rock. Glaciers everywhere it seems, to my uneducated eye. And cliffs, mountainous, peaks in the clouds, towering around us. I couldn’t really cope with the scale. From our little dinghy it all seemed very big but then, when I got back on the Shack, it all seemed even bigger.

Tall, straight cliffs plummeting into deep aquamarine milky blue glacier water. The spray of salty ocean in my face, the taste, the smell of seaweed and cry of birds all around us.

All these great memories overwhelmed by the magnificence of the land around us. The Fjord is long and deep, as you would expect, but reasonably wide. Wide enough to hold many bays each with it’s own glacier pouring into the ocean. From a bird’s eye view it could well have all been the same glacier with many outlets but I didn’t have a bird’s eye view. I was at sea level in an inflatable boat, loving the waves. At the far end of the first end we visited (that I at the time thought was the only end to the fjord), were hundreds of little storm petrels floating on the surface, below the ice cliff. Like flies, but pretty. Further back, a bunch of giant petrels gathered around us, trailing water as they ran and flapped in an attempt to become airborne. A few penguins, camouflaged on the black and white scree. The occasional seal, loafing. But these were the jesters giving scale to the land, the ice, the rock, ice pouring on ancient timescales, splashing into the bay beside us.

The last fjord we visited was called Larsen Harbour. I don’t think any of us jolly merchants knew where we were going at this point, or what to expect. If the main fjord was a motorway, this subsidiary was the lane you leave on. (I can’t even remember the words for these things!) It was thin and quiet, sheltered, the cliffs towering and vertical. And long. We explored, our little boat and the fibreglass rescue craft, continually expecting an end in sight. And it kept going: deep, thin and quiet. Oh yeah, and cold. Our skipper stopped the boat at the far end and out we climbed. That’s right, we climbed out. The first rock I have stood on for 14 months. Not a bad re-introduction I would say.

The above happened three days ago. Since then we’ve spent two days at Grytvikken and are now floating off the coast of Bird Island. My feet have been re-introduced to land! And how luscious it feels. Soft soggy green moss that bounces underfoot, rocks, hard to touch, warm wind. Falling asleep outside in the sun after eating a packed lunch. Entire days outside without having to fear the inevitable cold encroaching. T-shirt weather. Hills.

South Georgia was still as beautiful as ever and the people and wildlife as friendly. King penguins, elephant seals, juvenile furries, albatrosses, petrels and blue-eyed shags. The South Georgia pintail: beautiful innocent looking carnivorous ducks. Annoying prickly stickly burnet clusters that stick all over your feet and legs. Men playing football on the old pitch set up by the whalers early last century. The old church, I rang the bells, tiny star-shaped flowers in the dry grass, tussock grass hiding fur seals and other dangers, a king penguin with freshly hatched chick. The rusty whaling station and old dam for hydroelectric energy. A crashed helicopter, a WW1 gun, wildlife overtaking them all. If any of you out there reading this ever consider an Antarctic cruise, make sure this island is on the itinerary!

Posted by Rhian at 13:08 EST | Comments (3)

Saturday, March 05, 2005

A broken market

Imagine it's still 2000: during the bubble, before Spitzer. The market's white-hot, and IPOs from hyped young companies are hugely in demand. The broker-dealers deliberately underprice the IPOs they get, guaranteeing mark-to-market profits for their favoured customers – the ones who can get in at the IPO price.

That's bad enough, and in fact is more or less what happened in the US stock market a few years ago. It also meant that virtually every bank on Wall Street ended up paying a lot of money out in settlements, and many high-profile executives were fined, lost their jobs, or worse.

But let's say it didn't stop there. Let's say that the deliberate underpricing applied not only to IPOs but to secondary offerings as well: that broker-dealers would sell stock in Google, say, for $20 a share even when it's already trading in the secondary market at $185.

And that's just the beginning. Broker-dealers also quite explicitly sell access to their offerings for cash: you give me money now, and I'll make sure that you're able to get in on the ground floor in the future.

And the much-prized access to IPOs and secondary offerings is based only partly on the basic market relationship of how much money the investor has and how much they trade with the broker-dealer. A lot of other factors come into play, such as who you know, what your surname is, and whether you have managed to gain a good reputation in the market already. In fact, it's reached the point at which investors wanting in on those offerings end up employing other people, with good names, to represent them – just so that they can get the necessary access to the broker-dealers. It's a whole second level of intermediation: the broker-dealers are the intermediaries between the issuers and the investors, while there are also "consultants" who intermediate between the investors and the broker-dealers.

But wait: there's more. Let's say that there's a small open liquid market but that there's a much larger behind-the-scenes market, with opaque prices, where the broker-dealers put together trades between buyers and sellers without ever having to disclose how much is being paid. What's more, the broker-dealers feel so threatened by the open market that they quite explicitly try to place their IPOs only with investors who won't ever try to take profits by selling in public. Much better that their investors, if and when they do want to sell, come back to the original broker-dealer, and place the property for sale privately, giving the broker-dealer another chance to make money as well as giving them valuable proprietary information that is not available to the rest of the market.

In this market, the most revered investors are buy-and-hold funds which never (OK, which almost never) sell their holdings. These super-investors make their holdings public, and all the broker-dealers want to sell to them. The problem is that the super-investors rarely if ever buy in the IPO market: they prefer to sit back and use their enormous leverage behind the scenes, often acquiring from smaller investors at prices well below market. One broker-dealer, in an attempt to get an issuer into one of the super-investors' portfolios, has even told his normal investors that they have to give the lion's share of whatever they buy in the IPO market directly to a super-investor. No gift, no deal, and the investor gets nothing at all.

You get the picture? So now a magazine runs an exposé about all this, and a major blogger responds with this:

"So [this stuff] sells and a lot of people want to buy it. Great. But so what? And, er, isn't people wanting to buy [this stuff] a good thing for [issuers]?"

Well, I've given it away now. The market I'm talking about is the art market, the broker-dealers are the galleries, who are both brokers (trading privately in the secondary market) and dealers (offering new works of art for sale). The issuers, of course, are the artists, the investors are the collectors, the super-investors are the museums, and the small open market is that provided by the auction houses.

The New York Magazine piece is shocking, and one of the most shocking things about it is that it really doesn't tell us anything we didn't already know. We've all become so used to the situation in the art world that it's impossible to shock us any more, even when we learn that galleries are selling paintings to favoured collectors at just 10% of the price they would receive at auction; even when we learn that a collector who spends more than $1 million a year on contemporary art had to "invest" $75,000 in the Project Worldwide gallery just in order to be able to be allowed to buy the art it was showing. (And still he wasn't able to, in practice: the paintings he's now suing over went to Jeanne Greenberg Rohatyn instead.)

What's more, the galleries are quite shameless about their own behaviour: as the article says, "dealers often rejoice, and collectors despair, that the art world is the last big unregulated business in America." It's so clubby that even a budget of $1 million a year isn't enough to give you real clout: for that you need to be spending, um, real money. Like $300 million money.

The system as it stands doesn't just benefit the galleries at the expense of the collectors. It also benefits the galleries at the expense of the artists (who could get much more money for their works than they get from their galleries), and, more broadly, it benefits the established art-world names at the expense of smaller players and newcomers. It creates enormous barriers to entry, especially for anybody who might be interested in collecting art, and it creates a general atmosphere of distrust and resentment which makes the art world one of the bitchiest and most unpleasant arenas that anybody could ever consider getting involved in.

It used to be the case that someone with a great eye and limited funds could amass an impressive art collection just by buying early in artists' careers. Today, collectors buy the work of great artists at low prices the whole time. But those prices are only available to the richest and most established collectors: Charles Saatchi, say, could snap up that Elizabeth Peyton from Gavin Brown for $50,000 (that's what they were priced at, at her last show there), but you sure couldn't. You will need to wait – and wait – and wait – and eventually something will come up for auction, and there will be such a frenzy for such a rare piece that it will go for half a million or more. Which is just as artificial a number as that original pricetag.

Upshot: If you're thinking about collecting contemporary art, don't. You might be OK if you limit yourself to multiples – just remember that prints on paper have to be kept away from daylight. In general, however, the art market is a high-stakes game played among sophisticated insiders, and you weren't invited.

Posted by Felix at 18:17 EST | Comments (10)

Tuesday, March 01, 2005

The Birth of Icebergs

I'm not sure why I'm destined to love one of the most remote and inaccessible places in the world. Perhaps it is just one of those quirks of character that define who you are and which, try as you might, you can't change. I could avoid it as an impractical dream or, helped by good fortune, obey.

On Wednesday I was craned onto the RRS Ernest Shackleton, my once-was home, and waved goodbye to the friends we are leaving on the shelf. This time there were just six of them, tiny spots on the massive sheet of ice, immediately separated from the ship by an ever-increasing space of cold blue. Everyone present at the scene knew instinctively which side of that gap they wanted to be on. And most were satisfied.

Gut reactions teach you a lot even if outward displays of emotion are often discouraged. Leaving Halley, and pulling away from the ice that day was one of the hardest things I can remember doing. Not hard like difficult, since I had no choice so in fact it was very easy. Hard like gut wrenching. Hard like "I don't want to do this". Just hard.

Simon's sister left a message on my last blog saying she thinks I'll be back. Thanks, Alice, thanks for your faith in me. As for Simon, I'll miss him lots but I know I'll know him for much longer than either of us are at Halley. Leaving him, and leaving the others here, isn't the most traumatic aspect of the separation. Leaving the ice and the moment that can never be repeated was the wrench. Knowing that there is a possibility, even a likelihood, that I'll never come back.

Judging by my gut reaction just now, however, I guess I'll have to return to something like this.

The ship was moored at N9. No, was sitting at N9, not moored as it couldn't get close enough to the edge of the ice. Sitting in what seems like a big cul-de-sac of water, surrounded by ice shelf on three sides. Ice shelf with cracks. I dozed for most of the white journey to the ship and realised that I haven't slept in the back of a ground-based vehicle for years!

The ship was, I must confess, in a majestic spot. Nestled in a bay, surrounded by ice cliffs. We assembled our clatsch, chatted for word of direction, turned around, and boom – there in front of us was a great big iceberg that I could swear hadn't been there before. The cliffs were literally crumbling around us. A large tabular berg floated on past, oblivious that its latest bump with the shelf had created another loner in the ocean. This is the land where icebergs are born.

We were craned onto the ship, hanging onto the Wor Geordie, a big net that floats, across the ocean gap. I didn't want to join the ship; I didn't want to leave the ice. For the rest of the day I kept a low profile. The next day was a real treat, however, and slowly I was reminded that there are other good things in the world too. We sailed up and down the coast, investigating potential creeks where we could collect the remaining people on Friday. Into creek two, creek five, creek seven, nuzzling the ice, stepping back and watching the coastline,- the formation of creeks and their source at the Rumples. Halley in context.

To many short-term visitors the creeks must have all looked the same, but to us, each one was a new discovery. And in the evening? Sea smoke. The Earth System doing its damndest to remind me of the continuing revelations that are out there. Sea smoke. Magical. Pouring off the cliffs, hitting the warmer water, floating and surrounding us. The sun set and the moon rose. You can't ask for more really!

Friday really was our last day at Halley. We picked the remaining people up at creek 7 and a few lucky ex-winterers, myself included, got to go on the ice again. It was possibly the most picturesque spot yet and appropriate to be manhauling food and bags as a final task on the ice. It felt really good to be back there again, one last time.

Once all were aboard, we cruised around to creek 2 to wave goodbye to the wintering crew. The ship was sailing across water that we drove 7 tonne containers across only a couple of months ago. The sea ice has gone completely, the cliffs have crumbled. That crevasse I explored on my winter trip – now open to the world. Bizarre.

Seeing the winterers one last time was fantastic, so close we could shout across to them and had to dodge flares they sent our way. They were happy to see us go, I know that, as happy as I was last year, and will have a fantastic year. Strange as we sailed away though, seeing these 14 small spots and knowing they were the only humans around on all the ice I could see to the horizon and far beyond. Within a few hours Antarctica was barely a stripe on the horizon, within a day the occasional iceberg was all that I had to remind me of where we had been.